If you are looking for a house to purchase, you generally have two choices if you don’t have enough money to buy the home in cash. You can avail of either jumbo loans or conforming loans.

Have you ever heard of these two? If you are reading this, you might have been confused as to how these two differ. So what is the difference? In this post, we are going to help you understand these two and their differences.

However, do keep in mind that the differences between jumbo loans and conforming loans will depend on every lender and the programs they provide.

Down Payment

For jumbo loans, the down payment requirements are usually a bit more strict compared to conforming mortgages. A lot of homebuyers are required to make around 20% down payment for jumbo mortgages. However, this will vary among the lenders. Some require a minimum down of 15 to 30% for a Texas Jumbo loan.

There are also those lenders who will allow you to make a smaller down and are willing to provide you with a 5 to 10% down payment. These lenders, however, will want to ensure that you have a healthy financial state to pay off your loan. So if you want a smaller down payment, be prepared to take a higher interest rate. You can talk to your preferred lender regarding this.

For conforming loans, the down payment can go as low as 3%. Because of this, a lot of first-time homebuyers prefer conforming loans.

Also read: Conforming Vs. Non Conforming Mortgages

Interest Rates

In the past, jumbo mortgages had a higher interest rate compared to conforming loans. Nowadays, that isn’t necessary. Some jumbo loans have a comparable rate to conforming loans.

Credit Score

Just like the down payments, credit requirements are lower for conforming loans than jumbo loans. Most lenders will ask for a strong credit score to secure a jumbo mortgage. Some of the lenders will require a minimum of 720 credit score while others allow around 680 to 700.
If you plan to apply for a jumbo loan, some of the lenders will look at your credit history and payment. This includes your former and current lines of credit for your credit history.

Depending on the situation, the lender may ask for your rental records and mortgage statements from the past years to verify if you are capable of managing your funds and make payments.

On the other hand, conforming loans require around 620 credit score which is much lower compared to the jumbo loans.

Income Level

Homebuyers with a strong financial position often use jumbo loans so don’t be surprised if you find that these mortgages will require you more documentation and paperwork. Often lenders will also ask for a stronger debt-to-income ratio from around 38-43% range.

Cash Reserves

As for cash reserves, lenders often look for borrowers who have plenty of cash reserves in the bank for jumbo loans. Depending on the loan size, lenders may want to see around 6 to 12 months of mortgage payments reserved.